REIT Stocks

Chartwell Retirement Residences Valuation – Initial Coverage $TSE:CSH.UN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Chartwell Retirement Residences (TSE:CSH.UN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Chartwell Retirement Residences is an unincorporated, open-ended trust. The Company indirectly owns, manages and operates a range of seniors housing communities from independent living through assisted living to long term care. Its segments include Canadian Retirement Operations and Canadian Long Term Care Operations. It owns and operates senior residences in Canada. Its portfolio of residences includes independent living residences for seniors that include retirement units/townhouses/bungalows providing meals and general services; independent supported living residences for seniors that include retirement units/townhouses/bungalows with household general services; assisted living residences for seniors requiring personal care services; memory care units for seniors having Alzheimer’s or other form of dementia and requiring personal care services, and Long term care residences for people requiring professional nursing care on a daily basis and over 24-hour supervision.

CSH.UN Chart

CSH.UN data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

Learn More About Premium Membership

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CSH.UN – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,019,830,731 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.15 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -183.89% Fail
6. Moderate PEmg Ratio PEmg < 20 30.00 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.61 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.15 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -6.98 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.53
MG Growth Estimate 15.00%
MG Value $20.30
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $7.65
MG Value based on 0% Growth $4.48
Market Implied Growth Rate 10.75%
Current Price $15.82
% of Intrinsic Value 77.92%

Chartwell Retirement Residences does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $-0.63 in 2012 to an estimated $0.53 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 10.75% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Chartwell Retirement Residences revealed the company was trading above its Graham Number of $3.44. The company pays a dividend of $0.55 per share, for a yield of 3.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 30, which was below the industry average of 31.91, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.97.

Chartwell Retirement Residences receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.97
Graham Number $3.44
PEmg 30.00
Current Ratio 0.15
PB Ratio 3.61
Current Dividend $0.55
Dividend Yield 3.46%
Number of Consecutive Years of Dividend Growth 2

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $41,926,000
Total Current Liabilities $275,355,000
Long-Term Debt $1,629,628,000
Total Assets $2,764,873,000
Intangible Assets $57,573,000
Total Liabilities $1,933,918,000
Shares Outstanding (Diluted Average) 189,701,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.12
Dec2015 $1.99
Dec2014 -$0.05
Dec2013 $0.14
Dec2012 -$0.80
Dec2011 -$0.43
Dec2010 -$0.43
Dec2009 -$0.68
Dec2008 -$1.03
Dec2007 -$0.76
Dec2006 -$0.24
Dec2005 -$0.28
Dec2004 -$0.19
Dec2003 -$0.06

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.53
Dec2015 $0.54
Dec2014 -$0.22
Dec2013 -$0.36
Dec2012 -$0.63
Dec2011 -$0.58
Dec2010 -$0.65
Dec2009 -$0.70
Dec2008 -$0.64
Dec2007 -$0.40
Dec2006 -$0.20
Dec2005 -$0.15
Dec2004 -$0.08
Dec2003 -$0.02

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Equity Residential Valuation – February 2017 $EQR
Communications Sales & Leasing Valuation – Initial Coverage $CSAL
Kite Realty Group Trust Valuation – Initial Coverage $KRG
Kilroy Realty Corp Valuation – Initial Coverage $KRC
Crombie Real Estate Investment Trust Valuation – Initial Coverage $TSE:CRR.UN
Smart REIT Valuation – Initial Coverage $TSE:SRU.UN
Prologis Inc Valuation – February 2017 $PLD
Camden Property Trust Valuation – Initial Coverage $CPT
CoreSite Realty Corp Valuation – Initial Coverage $COR
Senior Housing Properties Trust Valuation – Initial Coverage $SNH

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top